NY Attorney General looking into private equity firms’ practices
New York, NY, United States (4E) – A number of large U.S. private equity firms are now under investigation by the New York attorney general for possible abuse in a tax strategy aimed to avoid millions of dollars in taxes.
Attorney General Eric Schneiderman has launched a probe of private equity firms to determine if they deliberate took advantages of loopholes in the tax system to avoid payment of taxes.
Sources say that at least a dozen companies were summoned in July through subpoena. Among private-equity firms that were called by the attorney general include Apollo Global Management LLC, KKR & Co., Providence Equity Partners Inc., Silver Lake, TPG Capital, and Bain Capital LLC, a company co-founded by Republican presidential candidate Mitt Romney.
The wide difference in tax rates is seen as a major factor why these companies could have used accounting practices that the attorney general is interested in digging into. Investment profits, also known as carried interest, of private equity firms has a 15 per cent tax rate while the management fees are categorized under ordinary income where the top tax rate is 35 per cent.
The Times reported that it is a common practice among private equity firms and tax experts admit it is acceptable. It is unclear, though, whether this practice is improper or not.
Schneiderman’s investigation will further put the industry into the magnifying glass. The industry has already taken a beating from the Obama campaign and the Democrats who are targeting Romney’s business experience during his Bain Capital years. They claim that Romney oversaw the dismantling of several companies that led to loss of many jobs while increasing his wealth by around $250 million.
Concerns were voiced out by some executives of these firms about Schneiderman’s intention given his close ties with the White House. They fear that the investigation is out to bring embarrassment to the industry because of Romney’s involvement with Bain.